How To Calculate Market Size For Your Travel Company

April 21, 2021
Lucas Ennis
5 min read

After a year of upheaval for just about every industry, including tourism, 2021 brings new hope for innovation and opportunity.

If you’re looking to build your travel brand or re-center your focus and product to meet demand in the new landscape, a critical step to take is to calculate your market size.

In doing this exercise, you can work out how much potential business is out there for your travel company. Many have pivoted their offering to reflect the times, but it is essentially happening in uncharted territories where the climate has shifted drastically or perhaps little or no demand previously existed.

To help travel companies and tour operators work out how to make their mark in this space, we have tips on how to calculate market size and its value after that.

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What Is Market Size?

Market size is not to be confused with your company’s target market.

Unlike your prime audience, your market size is the actual total market volume of people who buy into your particular industry or niche.

It includes the potential number of buyers for your travel product or service. Based on these numbers, you can work out what your possible revenue might be.

Keep in mind, though, that while the market size is the addressable market you have access to, your share of it will be the portion you can realistically compete for.

This part would involve pricing your service at a point that travelers are willing to pay and developing a product they see value in.

It doesn’t mean that you will be able to produce a perfectly accurate measure of the business that’s out there.

After all, the variables are pretty dynamic.

But, having a ballpark figure can help you to create a plan to carry your company forward.

Impact Of Market Size On Your Travel Business

Your market size is a fundamental element in the success of your travel company.

The viability of your business depends on evaluating the opportunities available to you. By calculating the market and then your achievable share of it, you can better plan for this unknown business climate.

How To Calculate Market Size

You will be able to develop budgets and strategies for sales, marketing, technology, and recruitment in your company.

These will play a critical part in ensuring you don’t over- or underestimate your market emerging from the pandemic.

How To Calculate Market Size

Collect Relevant Data

Data forms the basis of many informed decisions. To calculate market size, you need access to data that is relevant to what you offer.

For example, you might need to pin down the number of travelers who visit your region annually and their purpose for travel.

Or perhaps it is relevant to your dataset to know how many accommodation providers there are in your area and their average monthly bookings.

Collecting this data will require some work on your part, although there are a number of ways you can go about it:

  • Commission your own research
  • Gather data through trade associations
  • Find information on travel numbers through national travel and tourism offices
  • Visit countries tourism ministry websites
  • Reach out to your suppliers or partners for their figures

This is a starting point. However, you need to do more than just collect data. Think about integrating it with one of the calculation approaches mentioned below.

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Top-Down Approach

A top-down approach begins by having a holistic overview of your current travel market. You will want to have a macroscope covering potential clients and profit.

Once you have looked at the market as a whole, narrow it down to specifics that correlate with your target traveler to get a more accurate picture. You can do this by narrowing your target by age, location, gender, and income.

Then, you estimate the value each client will generate for your business and multiply that with the number of people in your target market.

A simple way to do this would be to analyze data from your direct competitors in the market. Look at their annual sales and market share to assess their product or service value. You would then average these estimates to come up with a figure to work with.

This method is simple and saves time. But, there is a need to caution against it. It may lead to misrepresented numbers as it relies on generalized trends and predictions. So, be aware that it can give inflated and overly optimistic results that may mislead your overall market size and profit forecast.

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Bottom-Up Approach

The bottom-up approach is more time-consuming, perhaps not as cost-effective as the previous approach, and requires staunch knowledge of your product.

The key is to narrow in on your market at a micro-level. Your primary focus here should be on exactly how your travel business fits into the market.

Consider the following: who will buy your product or service? Where will they buy it from? How much can you sell it for?

You can tackle this approach by collecting information from all the suppliers of components of your product or service. Ask how much revenue they collected in a period and total these figures for a complete market size.

This approach is more granular and allows you to more accurately forecast where your business might be years down the line based on existing trends.

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Final Thoughts

As travel begins to start up again, your travel company has many new variables to consider to gain traction and see success. If two or more of your market sizing approaches correlate with one another, you’re looking at a fair estimate to work from.

Most important, though, is to be realistic about the projections you work with. This involves staying objective and being realistic about your target travelers’ wants and needs.